How to cut your tax bill before the end of the financial year

Tax time is just around the corner and with the cost of living crisis in full swing, more than a few Australians are looking forward to the pressure relief of a healthy tax refund.

But tax rules can be a little complicated and confusing, and it’s common for people to overlook things that mean they’d get less tax back.

Here we’ll look at the key things you can do to reduce your pre-EOFY tax bill and get more back in your tax refund.

Ask for everything you can

The reality is that most people leave money in the ATO’s back pocket simply because they don’t claim everything they’re entitled to.

Take the time to understand everything you can legally deduct, and then make sure you claim it.

You are entitled to claim many expenses related to your work. For most people, one of the biggest areas of deductions is work-from-home expenses for your home office, technology and office supplies, etc.

Where you have dedicated space for a home office location, you can even claim a portion of your utilities and potentially even a portion of your rent or mortgage.

Motor vehicle expenses are another big area for deductions, with each taxpayer able to claim deductions of up to $4,250 per year for business travel.

You can also claim up to $300 without receipts for work-related expenses, but you must be able to support your claim if the ATO asks questions.

If you have any tax-deductible expenses that you have planned for the next financial year, it’s worth considering bringing them forward before 30 June. This will give you tax credits and the associated tax refund a whole year earlier.

The ATO has loads of useful and easy-to-understand guides on its website, so take the time to build up your knowledge so you know what you’re entitled to claim – then make sure you actually claim it.

Keep good records

To make filing your tax return easier and to ensure you don’t miss anything, keeping good records is vital. Having all your tax information at hand makes your job much easier when it comes to providing all the details on your tax return.

More importantly, he’ll make sure nothing gets overlooked, which means you’ll claim every dollar of tax you’re entitled to.

Whether you use a shoebox, digital filing, an app – the ATO even has its own – or my favorite method, the trusty spreadsheet, you need to find a way of tracking tax credits that works for you.

If you don’t have a good system in place, you end up scrambling to find things when you do your tax return, which means it can take longer to file your return and get your refund, and it can also mean you run the risk of forgetting about deductions.

The best approach here is whatever works for you, but my personal approach is to track these expenses throughout the year so you’re clear on your tax position at all times.

This has the added benefit of clarifying your tax position throughout the year and helping you with year-end tax planning.

Use strategies to reduce taxes

If you want to lower your tax even further, you’ll need to look beyond deductions and start exploring tax-saving strategies.

The most common and effective strategies are pension contributions, franked dividend equity investments, debt recycling and negative investing.

Superannuation contributions give you immediate tax relief and have the added benefit of putting the money into a superannuation fund where tax rates are lower.

Admittedly, this means your money is tied up in super, so it’s a long-term play, but since anyone can make deductible contributions of $27,500 each year, including your employer’s, this strategy can save serious tax dollars.

Franked investing in dividend shares is another solid tax saving strategy where you buy dividend paying Australian shares or ETFs that come with tax franking credits.

These tax credits reduce your overall tax bill and can increase your tax refund.

Debt recycling is one of my favorite strategies that allows homeowners to effectively convert their non-tax-deductible home mortgage into tax-deductible investment debt over time.

This strategy is a bit complicated and will take some time to implement, but it offers serious tax savings.

Negative gearing is another strategy that can save a significant amount of tax and involves borrowing money to invest, most often in real estate.

Under ATO rules, whenever you borrow money for investment purposes, all costs associated with the investment become tax deductible, including mortgage interest costs along with other costs associated with your investment, such as interest rates and insurance.

Wrap

Tax time can be an exciting time of year, and a good tax refund can give you a head start in the year ahead.

This is something useful at any time, and in today’s cost of living crisis it is even more valuable.

Tax rules can be complicated and a bit confusing, but they really don’t lead anywhere.

To make the most of the money you have today and use the rules to your advantage, you need to strengthen your tax knowledge and skills to make your tax planning easier today and in the years to come.

Ben Nash is a personal finance and investment expert, financial advisor and founder of Pivot Wealth www.pivotwealth.com.au. You can follow more Ben’s Free Instagram Content | Facebook | Podcast.

Ben is also the author of ‘Swap Your Salary for Investing’ and Get Unstuck and does free online money regularly educational events, you can check all the details and reserve your place here.

Disclaimer: The information in this article is general in nature and applicable they do not take into account your personal goals, financial situation or needs.

Therefore, you should consider whether the information matches yours circumstances before acting and seek professional advice if necessary from a financial professional.

Read related topics:Tax time

Leave a Comment